[Verse 1]
When you buy an option contract today
There's two parts to what you're gonna pay
Intrinsic value is what's really there
The profit you could make if you don't care about time
Time value is the extra that you spend
For the chance that things might change before the end
Together they make up the premium price
Let me break it down for you real nice
[Chorus]
Intrinsic plus time equals total worth
In the money means your option's got some girth
At the money means you're right at the strike
Out of money means no profit's in sight
ITM, ATM, OTM - remember these three
That's how we measure moneyness, you see
[Verse 2]
Call options give you the right to buy
If the stock price climbs up to the sky
When the market's above your strike price line
That's in the money and you're feeling fine
Put options let you sell at the strike
When the market falls, that's what you like
If the stock's below your strike today
In the money put will make you pay
[Chorus]
Intrinsic plus time equals total worth
In the money means your option's got some girth
At the money means you're right at the strike
Out of money means no profit's in sight
ITM, ATM, OTM - remember these three
That's how we measure moneyness, you see
[Bridge]
Time decay is always working hard
As expiration nears, time value's scarred
At the money options have the most time
Out of money options lose their shine
The deeper in the money that you go
The more intrinsic value starts to show
But don't forget that time is still a part
Until expiration tears them apart
[Chorus]
Intrinsic plus time equals total worth
In the money means your option's got some girth
At the money means you're right at the strike
Out of money means no profit's in sight
ITM, ATM, OTM - remember these three
That's how we measure moneyness, you see
[Outro]
Two components make the option's price
Intrinsic and time value - that's my advice
Moneyness tells you where you stand today
In, at, or out - that's the CFA way